Internet companies, stung by earnings, still look pricey

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Expedia Inc can send people to destinations around the world, but it can't send investors back in time so they can avoid the stock's massive selloff on Friday.

The stock's 25 percent fall is its worst in seven years, becoming the latest in what is shaping up as a rough quarter for Internet company earnings. Expedia, Netflix and Google were hit hard after reporting earnings in the last two weeks.

Investors have chased this group higher in 2013, lured by expanding user bases and profit growth that eclipsed the broader market. But that has raised concern among analysts who see the sector as a whole as overvalued and ripe for a sell-off.

That appears to be what befell Expedia on Friday, as it suffered its biggest one-day loss since May 2006 after its results fell short of expectations.

"I don't see any Internet stock that looks like a value," said Kim Forest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. "I'm a fan of them as a customer, but wouldn't pay anywhere near the multiple we're seeing for them."

One measure of the valuation of these companies, intrinsic value as calculated by StarMine, a Thomson Reuters company, shows that of the 55 or so industries among the top 1,000 US companies, Internet and catalog retailers are the most overvalued, and Internet software and services companies are the seventh-most overvalued.

Intrinsic value evaluates a stock based on projected growth over the next decade, using a combination of analyst forecasts and industry growth expectations.